AS the price of oil drops to $65 per barrel this week, it is interesting to cast thoughts back to some arguments made by the SNP in their attempts to persuade Scottish voters to vote Yes in the referendum.

For one thing, as readers may recall, the SNP’s whole strategy was predicated on the price of oil being $113 per barrel, nearly double the current price.

To quote Mr Salmond: “Even with a cautious estimate of oil prices remaining at $113 a barrel, it’s clear that Scottish oil and gas could generate three times more than official estimates.”

As I and others pointed out in the run up to the referendum vote, oil revenues would be central to two key accounts of an independent Scottish government – its fiscal balance (the difference between what the government spends and raises in taxes) and the balance of payments accounts (the difference between what Scotland exports and imports with an adjustment for the repatriation of profits made in Scotland by firms headquartered overseas).

It’s widely accepted oil revenues, like all commodity and asset prices, are highly volatile, as the current fall illustrates.

And there can be little doubt the current fall in the price of oil would have wreaked havoc with an independent Scotland’s internal and external finances.

Although Scotland was not due to become independent until 2016, if there had been a Yes vote, the kind of oil price fall we see now could easily be still in place then and indeed, oil prices could in fact be lower.

Professor Ronald MacDonald of Glasgow University

So it is interesting to assess what impact the fall would have had if Scotland had been independent.

Take first the implications for the fiscal balance.

The Scottish Government’s statistics indicate Scotland had a fiscal deficit, including a geographic share of North Sea oil, of 8.3 per cent of GDP in 2012/2013 and this would translate into a deficit today given the price of oil of around 12 per cent of GDP (around £14billion, or £2billion more than the NHS budget).

This is double the UK deficit and would mean the austerity we are likely to see on a UK wide basis, irrespective of which UK party wins the next Westminster election, would have an extra layer added if Scotland was independent.

The big difficulty an independent Scotland would face is how to fund such a large deficit. Normally a newly minted country would run a fiscal surplus to gain credibility in international financial markets and so it is unlikely it could borrow such a large amount unless at penal interest rates, particularly given previous SNP pronouncements about reneging on debt.

The consequence of this could be that an independent Scottish Government would end up pursuing what economists refer to as a pro-cyclical policy of raising taxes and of cutting public expenditure.

Given that around 40 per cent of Scotland’s tax base is paid by the most mobile 20 per cent of the population this would lead to immigration and unemployment, with the consequent further decrease in tax revenue and further widening of the fiscal deficit, leading to an economic meltdown.

In terms of an independent Scotland’s external finances, it is now beyond doubt that, even including the revenues from North Sea Oil, Scotland has a significant balance of payments deficit.

At the time of the referendum I estimated this deficit to be in the region of 5 per cent of Scotland’s GDP (around £6bilion). If Scotland had become independent it would be a net exporter of oil so the almost halving of the price of oil would have worsened Scotland’s balance of payments considerably.

The normal response to a worsening balance of payments would have been to devalue the exchange rate, but the SNP’s pre-referendum plans ruled this out by their insistence on some form of sterlingisation (i.e. continued use of the pound).

So an independent Scotland’s balance of payments could only be improved by wage and price cuts and likely further unemployment which improved the country’s competitiveness, along the lines of the extremely painful adjustment that has taken place in Greece.

Political Editor David Clegg writes:

PLUMMETING oil prices would have left Scotland facing a Greece-style “economic meltdown” if there had been a vote for independence, one of the world’s top economists has claimed.

Professor Ronald MacDonald lays bare the devastation that would have been inflicted on the nation’s finances if we had broken away from the UK in the face of collapsing revenues from the North Sea.

The global price of oil has tanked in the 12 weeks since independence was rejected on September 18 and now sits below $65-a-barrel.

In contrast, Alex Salmond’s economic blueprint for independence was based on oil being valued at $113-a-barrel. He repeatedly dismissed unionists warnings as “scaremongering”.

Experts now believe the oil price could, in fact, fall even further in the coming months.

And MacDonald reveals Scotland would have faced spending cuts and job losses as devastating as those that have caused chaos in Greece.

Supporters of independence have argued Scotland would not yet be fully independent even if there had been a yes vote, and that oil revenues could just as easily go up again.

MacDonald outlines the damage the drop in oil price would have done to an independent Scotland’s economy in an article for today’s Daily Record.

He says: “The recent fall in the price of oil starkly illustrates how shaky the finances of an independent Scotland would have been and makes the austerity programme the UK is currently facing look like a tea party in comparison to what an independent Scotland would currently face in terms of tax rises, expenditure cuts and rising unemployment.”

Prof MacDonald – who has advised oil producing countries around the world on how to manage their economy – adds that on the current oil price an independent Scotland’s deficit would have been greater than the entire budget of the NHS.

And he insists a separate Scottish Government would have been forced to hike taxes and slash spending like the Greeks have done in a bid to get their debt crisis under control.

Anas Sarwar (Image: Daily Record/Phil Dye)

Scottish Labour interim leader Anas Sarwar last night said Professor MacDonald’s analysis showed the SNP “have been well and truly found out”.

He added: “The SNP based their whole economic case for independence on a price of a barrel of oil almost double what it is today.”

But the SNP insists Scotland would not have become independent until March 2016 under their timetable – giving the oil price time to recover.